How to get a business loan: the steps and what to prepare

The steps run in this order, and most of the work happens before you apply:

1. Decide what the money is for, how much you need and how long you need it.
2. Match that need to a type of finance.
3. Prepare the documents and figures a lender will ask for.
4. Check your credit position and fix what you can.
5. Compare lenders and offers on total cost, not only the headline rate.
6. Apply, answer questions promptly and read the agreement before you sign.
7. Plan the repayment into your cash flow from the first month.

Each lender sets its own requirements and decides for itself, so there is no single checklist that works everywhere. Our guide to business loan requirements goes deeper on what lenders ask for.

You decide by writing down the purpose, the amount, the length of time you need it for and where the repayments will come from. A lender will ask the same questions, so vague answers cost you time.

The purpose also points to the product. A one-off purchase suits a different type of finance from a gap between paying costs and being paid.

Prepare the evidence that shows what the business does, how it makes money and how it will repay. The exact list varies by lender and product, but these are the usual building blocks.

• A business plan that explains what the loan is for and what it will change.
• A cash flow forecast, so the lender can see the repayment fits. Our guide to a cash flow forecast shows how to build one.
• Recent financial records: accounts or management figures and bank statements, as the lender asks.
• A list of what you already owe, with balances, repayments and dates.
• Identity details for the business and its owners or directors.

For a sense of what a lender may weigh, the Start Up Loans scheme says it assesses the strength and viability of the business through the business plan and cash flow forecast, and the affordability of the loan through a personal survival budget, alongside a personal credit check. That is one scheme’s approach, not a rule for every lender, but it shows the pattern. Our guide to writing a business plan covers the first item.

Lenders assess whether the business can afford the repayments and whether the people behind it have a record of paying what they owe, using the information you give them and credit reference data.

The Information Commissioner’s Office says credit reference agencies give lenders a range of information about potential borrowers, which lenders use to decide whether to offer credit. It adds that the agencies do not hold blacklists and do not tell a lender whether it should offer you credit: that is for the lender to decide.

For a company the British Business Bank describes a business credit score as a numerical representation of the business’s creditworthiness, derived from its financial history. For a sole trader, partner or guarantor the personal file matters too. Our guide to business credit scores explains the difference.

You check it by requesting your credit information and by looking for any county court judgments before a lender does. Finding a mistake early gives you time to fix it.

• The ICO says you have the right to request a copy of the information held about your financial standing from any consumer credit reference agency, free of charge. Look for the statutory report option.
• GOV.UK says a county court judgment stays on the Register of Judgments, Orders and Fines for 6 years, and that banks and loan companies use it to decide whether to give you credit. If you pay in full within a month, the judgment can be removed from the register.
• TrustOnline provides access to the official statutory register of judgments for England and Wales.

If you find a judgment, see what a CCJ is for how it affects borrowing. Understanding soft and hard credit checks also helps, because a soft search for an eligibility check does not affect your credit score, whereas a full application may involve a hard search.

You can apply directly to a bank or specialist lender, through a broker, or through a government-backed scheme where you qualify. Each route has different strengths, and applying to several lenders at once can leave several searches on your file.

• The lender directory shows lenders grouped by the kind of finance they offer, so you can start with the right type.
• Government-backed options exist: see our guides to the Growth Guarantee Scheme and government-backed business loans.
• A broker can approach several lenders on your behalf and set out what comes back.

Compare more than the interest rate, including fees, the repayment schedule, security and what happens if you repay early. Our guide to how to compare business lenders sets out what to put side by side.

Check what you are giving as security, whether you are personally on the hook and the full cost of the agreement, because these decide what happens if the business struggles.

• Security. A secured loan is backed by property or assets you own. A lender may register a charge over a company’s assets at Companies House. GOV.UK says details must be delivered within 21 days beginning the day after the charge is created, and our guide to a debenture explains one common form.
• Personal guarantee. The British Business Bank says a personal guarantee makes the director personally liable for repaying the loan if the business defaults or becomes insolvent. Some lenders ask for the full amount and others for as little as 20%.
• The full terms. Read fees, early-repayment terms and what counts as default.

If you are declined, ask the lender why, fix what you can and consider other types of finance, because a refusal from one lender is not a verdict on the business.

Under the Bank Referral Scheme, HM Treasury says nine of the UK’s largest banks must pass the details of small businesses they turn down for finance to three government designated finance platforms, with the business’s consent. That is a route to other lenders, not a promise of an offer.

Do not send a rush of new applications, which can leave several searches on your file. Read our guide on why business loans get declined first, and if credit history is the issue see business loans with bad credit.

Capzy is a credit broker, not a lender, and is paid by the lender. We introduce businesses to lenders that offer the kind of finance you need and set out what comes back so you can compare it.

You can check your funding options with a soft search that does not affect your credit score. A full application to a lender may involve a hard search, and any offer is subject to status and lender criteria. We do not give tax, legal or accounting advice, so ask an accountant or solicitor about the decision to borrow and what you are agreeing to.